Could Africa be the Next Frontier for Fashion Retail?

NAIROBI, Kenya — In recent weeks, the media hype around Africa has been remarkable, with several articles in major publications proclaiming the continent “the next Asia.” In fashion, Franca Sozzani even dedicated the entire May issue of L’Uomo Vogue to “rebranding Africa,” while this year’s IHT Luxury conference will discuss “the potential of Africa, both as a producer and ultimately consumer of luxury goods.” But to what extent is there a real business opportunity for international fashion retailers on the African continent?

While Africa often serves as inspiration for fashion collections, it’s China, India and Brazil that currently present the greatest growth opportunities as emerging consumer markets. But with large international fashion retailers like Mango, Zara, Levi’s and Gap already active in Africa, and ASOS offering free deliveries to the continent, perhaps it’s time to ask the question: could Africa be fashion’s next frontier?

Growth Drivers

According to a recent Economist Intelligence Unit (EIU) report entitled “Africa: Open for Business,” real GDP growth for Sub-Saharan countries Angola, Kenya, Nigeria and South Africa was forecasted at nearly 4 percent for 2012, with average growth expected to hit 5 percent a year from 2013 to 2016. While these numbers are behind similar estimates for China and India, they are remarkable compared to anemic growth projections in Europe and on par with Brazil and Russia.

Indeed, seven of the world’s 10 fastest-growing economies are currently in Africa, with 70 percent of the continent’s population living in countries which have enjoyed average economic growth rates in excess of 4 percent over the past decade. This steady progress has given rise to a growing middle class. In fact, approximately 310 million people on the continent are now deemed middle class (defined as those spending between $2 and $20 a day at 2005 prices) according to a 2011 report by the African Development Bank, driving demand for products like mobile phones, televisions and fashion.

To be clear, while poverty in Africa is declining, only a small slice of the continent’s population can afford consumer goods, with most purchases coming from the very low end of the price spectrum. But consumption is steadily rising. According to the EIU report, by 2030, Africa’s top 18 countries could have a combined spending power of $1.3 trillion.

Youth culture is also a critical driver of opportunity for fashion retailers in Africa, the youngest of the world’s continents, where the number of 15 to 25 year olds is still growing at an astounding rate. “Western fashion is very popular with this younger generation,” said Joanna Maiden, managing director of SOKO Kenya, an ethical clothing production workshop who manufacturers for clients including ASOS Africa and New York-based label SUNO. “The middle class is moving away from more traditional clothing and going for more contemporary styles.”

“African consumers are no longer satisfied with a third or even second rate offering of products,” added a spokesperson for sportswear giant Adidas. “Their brand awareness is strongly driven by international media exposure through TV, but also through accelerated advancements in internet penetration and accessibility.”

“One of the things that [has] amazed us is that [Africa] is a very brand-conscious market; particularly in our West African markets, in Ghana and Nigeria,” said Mark Turner, Africa director at Mass Discounters (a Walmart subsidiary) at a conference held in Cape Town earlier this year. “It is a market that travels extensively and has access to [the] internet. It is amazing how sophisticated that customer is.”

South Africa First

But it’s clear that not all African countries have developed equally and, thus far, international fashion retailers have largely focused their efforts on South Africa, by far Sub-Saharan Africa’s most developed economy.

Levi’s, long considered a leader in new market expansion, introduced their jeans to South Africa following democratic elections back in 1994 and have since built a trusted status brand that has been highly successful amongst the country’s growing middle class. “Emerging markets tend to be defined by a booming middle class of brand conscious and aspirational consumers who show their status through an outward expression of their wealth through the brands that they consume,” commented Lauren Kulhmey, Levi’s brand manager in South Africa.

Other fashion and apparel retailers, though intially slow to follow, have accelarated their South Africa activities in the last year. Zara opened it’s first store in Johannesburg in 2011, followed by a second store in Durban’s Gateway Shopping Mall in March 2012. Meanwhile, Gap has opened two stores in South Africa, both in the past year. “The country represents the largest retail market in Africa and one of the most stable economies on the continent,” commented a spokesperson for Gap. “This combined with a high rate of tourism and a rapidly growing demand for international retail brands makes South Africa an ideal environment in which to bring our store experience.”

Beyond South Africa

Beyond South Africa, countries with the highest potential include Nigeria, Ghana and Kenya. Nigeria, Africa’s largest oil producer which recently scrapped its textile import ban, driving renewed interest from international fashion and apparel retailers, is currently home to brands including Levi’s, Mango, Nike and Swatch, which have set up stores in the Palms Shopping Mall in Lagos.

“Just because bad stuff is happening in places like Zimbabwe, it doesn’t mean there aren’t good things happening in places like Ghana,” said Richard Dowden, director of the Royal African Society. Indeed, in Ghana, the discovery of a sizeable oilfield in 2010 has stimulated substantial GDP growth and increased incoming migration flows. International brands such as Mango, Nike, Puma and Swatch operate stores in Ghana’s capital Accra, with the Accra Mall becoming a significant destination for fashion.

Kenya, a regional business and tourist hub with East Africa’s largest economy, is also a potential destination for international retailers. Oil was discovered in March 2012 in the country’s northwestern Turkana region and footwear brands including Adidas, Converse and Nike are already selling from Nairobi’s Westgate Premiere Shopping Mall.

Exploiting the Opportunity

Retailers who act early and target the emerging middle class in fast-growing countries stand to benefit from long-term gains. But that’s not to say that doing business in Africa comes without challenges and companies contemplating expansion on the continent would do well to consider the following recommendations:

Springboard Cities Consider first opening stores in cities such as Johannesburg, Cape Town, Lagos and Accra where there is a strong emerging middle class, strong infrastructure and political and currency stability. South Africa is the recognised gateway for international brands and retailers who are looking to gauge the potential of future Africa openings.

Other Stores Before Yours For brands who prefer to avoid the capital investment and risk associated with opening their own stores, distributing with established local stores, as Gap initially did with Stuttafords in South Africa, is a good first move that enables companies to gauge consumer response to their brands and products and gather real market data to support any future ambitions.

Franchising Opportunities Retailers looking to make a big splash into Africa may want to study Mango's strategy. The brand currently has shops in 9 Sub-Saharan countries — Angola, Benin, Cameroon, Côte d’Ivoire, Ghana, Mauritius, Nigeria, Senegal and South Africa — a rapid expansion that was made possible through its franchise model.

One Size Doesn’t Fit All Understand your target consumers. Africa is a continent of 56 countries, each with distinct cultures, histories and brand preferences. East Africans tend to find Asian brands more appealing than those in the West. “They drive a Toyota, holiday in Dubai, buy Japanese and Korean gadgetry,” reported market intelligence agency WARC. “West Africans on the other hand have an outlook more closely aligned to the US. They aspire to drive big cars and are more likely to be ostentatious.”

Build Local Partnerships Many successful businesses in Africa are driven by tremendous entrepreneurial spirit and international retailers stand to benefit immensely from local partnerships, not least in the form of culturally accepted introductions into the market.

Embrace African Pride Africans are generally very proud of their heritage and though many are drawn to Western styles, they respond to an African twist. Retailers should consider tailoring colours, prints, accessories and styling to suit the African audience.

Sponsorship Opportunities
Local fashion weeks, designers and support organizations are fostering increased interest in fashion among young Africans and those involved in these efforts know the market and the local consumer far better than someone coming in from the outside. International fashion businesses entering the market may benefit from seeking collaborations with these local industry beacons who welcome funding and can offer local knowledge and contacts in return.

Go Online and Go Mobile
Creating an Africa-facing instance of your website is another low-risk method of gauging consumer demand for products. ASOS already provides free shipping to Africa in six to 12 days and could become the trendy e-tailer of choice on the continent. Due to lack of physical infrastructure, Africa is also the world’s most advanced market in terms of mobile financial services, making mobile commerce a highly relevant strategy, especially in Kenya, Nigeria and South Africa, where mobile payments are increasingly becoming the norm.